The Surprising (?) Strength of the Mercedes-Benz Brand

It has been a while since this Kat has considered the thorny issue of brand rankings and brand value. But a recent piece on Daimler/Mercedes-Benz has once again attracted his attention to this issue. But before he delves into it, a bit of anecdote is in order.

This Kat has not owned a motor vehicle in 30 years, much to the embarrassment of his offspring, who have had to deflect barbs from their purported friends, who questioned our fitness to be parents. Be that as it may, when Mr and Mrs Kat went on a holiday a decade ago, they decided to rent a car, the better to see the sights of joyous Provence. When it came time to choose the vehicle in question, it came down to a couple of French brands (don't remember which) and a compact Mercedes-Benz, there being no difference in price between the three cars. The decision was, as they say, a no-brainer, and off we went in the Mercedes-Benz, Mrs Kat behind the wheel with this Kat serving as her faithful navigator. The moral of this tale for what follows is simple—for this Kat, Mercedes-Benz was the ultimate car brand.

Imagine the emotional deflation that ensued upon reading an article in the November 9, 2013 issue of the The Economist. Entitled “Stuck in Third”, here, with the byline—“Daimler is set to keep chugging down the Autobahn behind BMW and Audi”—the article described the mixed record of Mercedes-Benz (being the car division of Daimler) vis-à-vis its fellow German competitors. First the good news: Daimler’s shares have risen 40% during 2013 and its worldwide sales for October 2013 rose 15% on a year-over-year basis, setting a new record. Now for the less good news: Mercedes-Benz trails both BMW and Audi on the basis of sales and profitability in the luxury car market. In the face of this good and bad news, Daimler’s boss nevertheless expressed the view that he hopes that his company will become the leading premier carmaker by 2020.

The article goes on to describe the missteps that have hampered Mercedes-Benz in recent years:

1. The meta-misstep was perhaps the attempt to turn the company into what the article calls “a transport conglomerate, adding planes, trains and even spaceships to the mix.” From being identified as the ultimate luxury car, it stumbled with its entry-level A class vehicle and its frugal, but unprofitable, Smart car.

2. Either in parallel with, or because of these missteps, the company’s vehicles began to suffer from problems of reliability and its reputation for engineering excellence waned. It continues to lag in technological prowess.

3. The company was apparently nowhere to be seen when its competitors first entered the SUV market and, as well, it did not find an adequate way to address its competitors' success in offering smaller, but still luxurious cars.

4. The vaunted efficiency of its workforce has declined (“BMW sells 30% more cars with the same number of workers, says Morgan Stanley, a bank”).

5. The company was late to enter the China market, where BMW outsells it by 70% and Audi sells twice as many cars.

The Economist sums up the company as follows:

“Despite its bumpy ride Daimler still has a strong brand and decent revenues from cars as well as a solid truck, van and bus business.”

What grabbed this Kat’s attention was the assertion about the strength of the brand. Given the litany of woes and the company’s third place ranking among German luxury car manufacturers as per the article, how strong could the brand be? Well, it turns out, a lot stronger than one might think. This Kat checked the Interbrand—Best Global Brands rankings for 2012, here, and 2013, here, and this is what he found. For both years, Mercedes-Benz is ranked at the 11th most valuable brand, one spot ahead of BMW (which is ranked 12th for both years), and far ahead of Audi, ranked 55th for 2012 and 51st for 2013. Despite the fact that the Mercedes-Benz car offerings trail BMW and Audi on the basis of both sales and profitability (“[c]ritics say that Daimler’s bosses are a little disconnected from reality in claiming that the firm will one day lead the pack again”), the brand is still the more “valuable” than its two German competitors.

Even if this Kat were to continue to opt for Mercedes-Benz as the brand he prefers from among the three, he represents the wrong age demographic (and in any event he is not likely to purchase another car in his lifetime). So the question remains—other than being an artifact (as honourable as it may be) of the ranking methodology, what exactly does the ranking strength of the brand mean in practice? Does it give the company a cushion of sorts with purchasers as it seeks to right the ship and reach the goal set for the company in 2020? Or is more of a legacy data point, with its value decreasing as each day passes?